TLDR
- Tesla (TSLA) shares jumped 17% after President Trump announced a 90-day tariff pause for most countries, excluding China
- Trump increased tariffs on Chinese goods to 125%, while China has raised tariffs on US imports to 84%
- Tesla stock has been volatile, currently trading at $259.76, down 31.5% since the beginning of the year and 45.9% below its December 2024 peak
- Tesla is vulnerable in China’s market, which represents about 20% of its 2024 sales
- Tesla is among companies that have filed for exemptions from China tariffs on machinery needed for US production
Tesla shares surged 17% on Wednesday after President Trump announced a pause in his controversial tariff policy. The move brought relief to investors who have watched the electric vehicle maker’s stock tumble 31.5% since the start of 2025.
The rally came after Trump declared a 90-day pause on reciprocal tariffs for most countries. He also reduced tariff rates to 10% for many trading partners.
China, however, was notably excluded from this trade détente. Instead, Trump escalated tensions by raising tariffs on Chinese goods to 125%, up from previous levels.
This development follows last week’s news that China had imposed a 34% tariff on all U.S. imports. That announcement had sent Tesla shares plunging nearly 10% just five days ago.
The market reaction underscores how deeply Tesla’s fortunes are tied to U.S.-China trade relations. While today’s broad pause helped lift the stock, the ongoing China situation remains a major concern.
Tesla’s China Challenge
Tesla faces a particularly tough situation in China, where it derived approximately 20% of its total sales in 2024. The company was already dealing with intense competition from domestic EV makers before the latest tariff escalation.
With Chinese tariffs on U.S. imports now at 84%, Tesla vehicles could become significantly more expensive for Chinese consumers. This price increase threatens to erode the company’s market share in the world’s largest electric vehicle market.
Chinese officials have made it clear they won’t back down. President Xi Jinping has shown no signs of yielding to U.S. pressure, with state media indicating China isn’t “afraid of trouble.”
The standoff has created uncertainty about Tesla’s near-term prospects in China. Any sustained reduction in Chinese sales could have a meaningful impact on the company’s overall revenue and profitability.
Supply Chain Complications
The tariff situation isn’t just affecting Tesla’s ability to sell cars in China. It’s also creating complications for the company’s manufacturing operations in the United States.
Tesla is among more than 1,100 U.S. companies that have filed requests for exemptions from tariffs on machinery imported from China. These companies argue they need these imports to set up or expand production lines in America.
This highlights a paradox in the trade war: measures intended to reduce dependence on China might actually slow down manufacturing growth in the U.S. in the short term.
Around 43% of total U.S. imports from China consist of capital and intermediate goods. Without access to these components, American manufacturers could face production delays and higher costs.
For Tesla, which has ambitious production goals, these supply chain disruptions could pose challenges for its manufacturing expansion plans.
Despite today’s stock jump, Tesla shares remain well below their recent peak. At $259.76, the stock is trading 45.9% below its 52-week high of $479.86 reached in December 2024.
Long-term investors have still seen impressive returns, however. A $1,000 investment in Tesla stock five years ago would now be worth approximately $6,797.
The broader market also reacted positively to Trump’s tariff pause announcement. Major stock indices rose as investors welcomed what appeared to be a more measured approach to trade policy.
However, questions remain about whether this rally can be sustained given the continued tensions with China and the potential impact of 125% tariffs on goods from the world’s second-largest economy.
Tesla’s vulnerability in this trade war stems from its dual dependence on China – both as a market for its vehicles and as a source for components needed in its U.S. factories.
The company also faces potential issues with rare earth materials, which are critical for EV production. China controls most of the production and processing of these minerals, and has already imposed licenses on exports of some rare earths.
As the trade war continues to evolve, Tesla investors will be watching closely for any signs of negotiation between Washington and Beijing. But with both sides currently taking hard-line positions, a quick resolution seems unlikely.
For now, the market has reacted positively to Trump’s partial pullback on tariffs. Whether this optimism continues will depend largely on how the U.S.-China trade relationship develops in the coming weeks and months.
